Brazil’s economy continues to outperform expectations, prompting numerous upward revisions, although analysts doubt the likelihood of such a scenario next year.
“Behind the sustained upward revisions this year is the better-than-expected impact of agriculture on the Brazilian economy. The problem is that these positive effects could be reversed next year as the region suffers the climatic effects of El Niño. These effects are already being seen in Argentina and could affect the harvest in Brazil next year,” Roberto Troster, an economist at consulting firm Troster & Associates, told BNamericas.
The OECD raised its growth estimate to 3.2% from 1.7% in June. Growth is expected to be 1.7% next year, compared to 0.5% originally forecast. The revision comes against the backdrop of positive developments in the agricultural segment, such as a record harvest at the beginning of the year.
Meanwhile, the Treasury increased its forecast to 3.2% from 2.5% this year and maintained its forecast of 2.3% for 2024.
“The good result of the second quarter of this year, the increase in the harvest forecast for 2023, the positive results observed in some leading indicators in the third quarter and the expectation of a recovery of the Chinese economy in the fourth quarter of the year contributed to this.” “We are increasing the growth estimate,” the Finance Ministry said in a statement.
Growth in 2023 is politically relevant as it is the first year of President Luiz Inácio Lula da Silva’s term. Last year, the economy grew by 2.9% under Jair Bolsonaro’s presidency. At the start of the year, growth estimates were below 1%, putting pressure on the Lula government.
“Although the economic contribution of agriculture will be lower next year, there is a possibility that positive effects will emerge as the central bank’s interest rate cutting cycle begins. That being said, I think it’s plausible that we’ll see the pros and cons of 2% growth next year,” said Troster, who was also there Chief economist at the banking association Febraban said.
GREEN BOOST
The government expects great economic potential from the green economy, attracting investments in energy transition assets and sectors.
“In Brazil we have already proven once and will prove again that a socially just and ecologically sustainable model is possible. We are at the forefront of the energy transition and our matrix is already one of the cleanest in the world,” Lula said in his speech to the UN General Assembly in New York (pictured).
He added: “87% of our electrical energy matrix comes from clean and renewable sources. Solar, wind, biomass, ethanol and biodiesel energy production is growing every year. The potential for the production of green hydrogen is enormous.”
Finance Minister Fernando Haddad, who traveled to New York with Lula, said at a seminar with investors: “Brazil can become a clean energy exporter by exporting lithium.” [green] Hydrogen, or we can use some of that energy to make environmentally friendly products.”
“The production of green ammonia produced by green hydrogen is not only a way to sustainably produce fertilizers, but also can contribute to the reindustrialization of the national fertilizer market and help reduce fertilizer imports and offset the deficit of commercial chemical products. Today, around 85% of the fertilizer used in Brazil is imported,” Camilla Ramos, CEO of consultancy Clean Energy Latin America, told BNamericas.
However, Ramos also said that most green hydrogen projects will not be feasible in the foreseeable future.
“We are currently analyzing the economic viability of virtually all green hydrogen projects announced in Latin America and around the world. More than 1,000 green hydrogen projects have been announced worldwide, but only 4% have made a final investment decision,” Ramos said.
INFRASTRUCTURE AREA
The waterways regulator Antaq and the German Society for International Cooperation (GIZ) have signed an agreement to decarbonize ports, which falls under a program funded by the Federal Ministry for Economic Affairs and Climate Change.
The agreement will analyze the readiness of Brazil’s port infrastructure to receive ships using carbon-free fuels, the use and export of green hydrogen and its derivatives, and the supply of energy from renewable sources to moored ships.
“We will understand how ports are prepared to receive ships that use less polluting fuels, whether they are prepared for decarbonization practices, including providing infrastructure for ships and setting up an offshore park,” Antaq chief Eduardo Nery said in an explanation.
“Brazil has great potential for developing projects in these areas, wind energy, hydrogen, green energy in general, but this potential will not be realized without clear regulation. Without clear regulation, it is not possible for me to convince shareholders to invest.” Batista Rodriguez Sanchez, the CEO of Ocean Winds, an offshore wind power joint venture between EDP Renewables and Engie, told BNamericas.
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